2018 (1) TMI 1253 - HC - VAT and Sales Tax

Benefit of exemption from payment of tax - Section 4-A of the U.P. Trade Tax Act - The only reason assigned to non-suit the revisionist is that the condition in the notification that unit is allotted land for the factory is not fulfilled - whether the conditions imposed in the notification is directory or mandatory? - Held that - The provision makes it clear that where in the opinion of the State Government, it is necessary for increasing the production of any goods or for promoting the development of any industry in the State, or any district or part of district in particular, it may exempt the turnover of sales in respect of such goods from payment of tax in the manner contemplated. Conditions for grant of such exemption is to be specified in the notification itself. It has to be examined as to whether condition of allotment of land for the unit is a mandatory condition or is it directory. The object underlying Section 4-A of the Act and the exemption notification is to promote development of any industry in the State generally or in any district or part of it. The idea is to encourage setting up of new units for the purpose in the specified areas. So far as establishment of new unit is concerned, it would have to be shown that the unit has land available with it for the purpose. Possessing of land is thus a mandatory or substantive condition in the exemption notification. The manner and mode of such acquisition has been specified from time to time. A notification dated 31st March, 1995 has been brought on record, issued for similar purposes, which was to apply in respect of production starting between the period 1.4.1995 and 31.3.2000. It was the notification dated 31st March, 1995, which was followed by the notification in question dated 15.1.2000. The condition of allotment of land specified in the notification dated 15.1.2000 has been substituted vide subsequent notification of 22.12.2001, as per which land could be obtained from any source. Possessing of land has a direct nexus with establishment of new unit, inasmuch as the new unit itself cannot come up in its absence. It has a direct nexus with the object sought to be achieved i.e. increase in production or development of industry in State. However, its mode of acquisition neither has any such nexus nor can it be attached the same importance. Section 4-A otherwise does not limit the grant of exemption to a unit depending upon the mode of acquiring land for it. Possessing of land for establishment of new unit although constitutes the mandatory or substantive part of exemption notification but mode of acquisition of land is wholly directory, and its non-compliance would not affect the essence or substance of the notification in question, granting exemption - revision allowed - decided in favor of revisionist/assessee.

Summary

Issues Involved:
1. Whether the condition of allotment of land for the unit is a substantive/mandatory condition in the exemption notification.
2. Whether the mode of acquisition of land is substantive or procedural for the purpose of granting tax exemption under Section 4-A of the U.P. Trade Tax Act.

Detailed Analysis:

Issue 1: Substantive/Mandatory Condition of Allotment of Land

The revisionist established a unit for manufacturing Oxygen Gas and sought exemption from payment of trade tax under Section 4-A of the U.P. Trade Tax Act. The exemption was declined by the Tribunal on the grounds that the unit did not fulfill the condition of being allotted land for the factory as specified in the notification dated 15th January 2000. The Tribunal held that the revisionist's claim was not covered under the exemption notification, and consequently, its benefit would not enure to it.

The court examined whether the condition of allotment of land is a substantive/mandatory condition in the exemption notification. The object of Section 4-A of the Act and the exemption notification is to promote industrial development by encouraging the establishment of new units. The court observed that possessing land is a mandatory condition for establishing a new unit, as the unit itself cannot come up in its absence. This condition has a direct nexus with the object sought to be achieved, i.e., increasing production or developing industry in the State.

The court referred to previous notifications and noted that the condition of allotment of land specified in the notification dated 15th January 2000 was substituted by a subsequent notification dated 22nd December 2001, which allowed land to be obtained from any source. This change indicated that the mode of acquisition was not of relevance, rather, possessing land alone had relevance for the context.

Issue 2: Procedural Nature of Mode of Acquisition of Land

The court analyzed whether the mode of acquisition of land is substantive or procedural. The revisionist argued that the mode of acquiring land is procedural and attaching importance to it is inconsistent with the object of the Act and the notification. The court referred to several judgments, including Mangalore Chemicals & Fertilisers Ltd. Vs. Deputy Commissioner of Commercial Taxes and others, and Commissioner of Sales Tax Vs. Industrial Coal Enterprises, which distinguished between substantive conditions and procedural requirements.

The court concluded that while possessing land for establishing a new unit is a mandatory condition, the mode of acquisition of land is procedural. The court emphasized that non-compliance with procedural requirements should not affect the essence or substance of the exemption notification. The court noted that the notification dated 22nd December 2001, which eliminated the mode of acquisition for the purposes of granting exemption, supported this view.

The court further observed that any distinction based on the mode of acquisition of land would be arbitrary and violative of Article 14 of the Constitution of India, as it would have no nexus with the object sought to be achieved by Section 4-A of the Act or the exemption notification.

Conclusion:

The court held that possessing land for establishing a new unit is a mandatory condition, but the mode of acquisition of land is procedural. The non-compliance with the procedural requirement of mode of acquisition does not affect the essence or substance of the exemption notification. The revision was allowed in favor of the assessee, and the question posed for consideration was answered accordingly.